Fair chance Nifty could slide to 9,350
The trend has turned down but there's a lot of support at current levels. The Nifty has bounced from 9,500 but this is a critical level. If it drops below 9,450, it could slide till 9,350. The nervousness is now focussed on domestic issues like the GST rollout and the management of the NPA crisis. Of course, Brexit negotiations remain very much on the agenda and escalation of the Qatar crisis could hit energy markets.
All institutions, domestic and FPIs, remained net buyers in June. Retail was also positive through the settlement. The trend would however be accounted negative in the shortterm although the intermediate and long-term trends would still be counted up. However, the market has narrowed with declines exceeding advances in the last few sessions.
The market has broken one key support at 9,550-9,575. There is a fair chance that if 9,500 breaks, the next stop will be 9,350. That would indicate a possible intermediate downtrend which could lead to a much deeper correction. About 10 sessions ago, simple trend following systems suggested staying long in the Nifty futures with a stop-loss at about 9,500. Many traders use those systems so there could be some concerted selling below say, 9,475. On the upside, on the next rise, the index must beat 9,709 and close above 9,700 to maintain a pattern of higher highs.
The VIX has spiked, which implies some trader nervousness. The put-call ratios are not very useful in settlement week.
VIX VS NIFTY
The Advance-Decline ratio has gone into negative territory for a few sessions. The dollarrupee rate has remained stable.
The index moved North in late December 2016 from 7,900 levels. It hit an alltime high of 9,709. The length of this current move (in terms of time and magnitude indicate that the next intermediate correction could be severe. The first Fibonacci level is at around 9,050 and a dip till 8,800 is possible in a full-blown intermediate downtrend - that's where the 200-Day Moving Average is.
The Nifty Bank saw reacted sharply on newsflow. Given current values at about 23,250, the July settlement could see either 22,000 or 24,000-plus hit. A strangle of long July 27, 24,000c (95), long July 27, 22,500p (146) is zero-delta but the premiums are very asymmetric, presumably indicating bearish sentiment. Either side of this strangle could be hit, given two big trending sessions. The cost can be offset by selling short July 6, 22,250p (26), short July 6, 24,000c (17). If either short position is struck, the corresponding long position will gain.
The July Nifty call chain has peak open interest (OI) at 9,700c and 9,800c, and high OI at every strike until 10,500c. The July put chain has very high OI at every strike down to 9,000p and substantial OI below, till 8,000p, with peaks at 9,400p, 9,200p, 9,000p and 8,800p.
The Nifty is at about 9,500. A straddle at 9,500c (118), 9,500p (111) would breakeven at 9,730, 9,270. A strangle at 9,700c (40), 9,300p (52) would breakeven at 9,792, 9,208. All these strikes are equidistant from money. If July is a swing month, one end of the straddles or strangles could be hit. But, it's also likely the strangle would come down in price in the next two sessions.
A brave trader might want to sell the 9,700c, 9,300p and reverse on Monday. A long July 9,700c (76), short 9,800c (40) costs 32 and pays a maximum of 68. A long July 9,400p (76), short July 9,300p (43) costs 33, pays a maximum of 67. These can be combined for a long-short strangle set. This costs 65, pays a maximum of 35. Selling this now and reversing on Monday may bring in a profit.